While many Proof of Work cryptocurrencies like Bitcoin take a clear, immutable stance toward token supply, like the Bitcoin halving, the digital asset space is still prone to inflation, especially when it comes to Proof of Stake protocols, which use inflation to incentivize network security, and liquidity mining campaigns, which use inflation to encourage and attract liquidity providers to “pool” external liquidity.
One benefit of the sharp increase in the adoption and use of digital assets is that it allows economic innovation to play out rapidly. Just as digital assets themselves are constantly evolving, so too are the tools and solutions surrounding them, including innovative ways of tackling inflation.
One of the policies that a digital asset project is putting in place to avoid the trappings of inflation is called Protocol Monetary Trade Policy (PMTP). PTMP was invented by Sifchain, an Omni-Chain DEX for cross-chain integration.
PMTP allows Sifchain's decentralized governance to have direct control over the purchasing power of ROWAN, the primary asset on the exchange, through subtle adjustments to the swap formula that is used whenever assets are exchanged. In this way, the purchasing power, and thereby the value of a user's tokens can increase through deliberate governance efforts.
This can help make ROWAN an enticing asset to hold. The first iteration of PMTP will enable governance to set daily purchasing power adjustments, which will compound to create a larger effect before the end of a policy is reached (also set by governance).
Sifchain will soon implement this new monetary policy with the intention of aggressively reducing, complementing, and eventually as alternative inflation while still incentivizing users to pool their external assets on Sifchain in order to earn ROWAN as a reward.
Other Deflationary Digital Asset Projects
Aside from Sifchain, many other pushes to facilitate a space devoid of inflation are being made. Some other projects within the digital asset space that are looking to solve inflation are:
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EverRise has launched a dApp called EverSwap, a multi-chain DEX, with a Native Coin Swap feature that lowers entry barriers for those interested in the multi-chain DeFi space. This feature makes cross-chain interaction more accessible and seamless by reducing the number of steps needed, reducing fees, and providing faster transfers.
EverSwap’s Native Coin Swap provides a one-step DeFi solution that allows users to swap native digital assets, like Ethereum, BNB, and Polygon, across chains without a centralized exchange to reduce inflation.
LUNA has been seeing plenty of interest recently as their stablecoin UST is skyrocketing up the charts in terms of market cap. The LUNA token is worth nearly $34 billion at the time of this writing and the accompanying UST stablecoin is ranks as the 14th most valuable crypto project with a market cap of nearly $16 billion.
It’s clear Terra is becoming a favorite among DeFi investors.
Sifchain’s PMTP Policy
PMTP is a novel feature for DEX's and DAOs that allows Sifchain users to more directly control the monetary policy of the platform’s economy and all pairs on its Automated Market Maker (AMM).
PMTP will help increase the effectiveness of inflationary liquidity mining rewards by flipping the problem on its head. Inflationary rewards seek to attract liquidity by giving users more of an asset; PMTP seeks to make the reward asset more valuable. The ultimate goal of PMTP is to attract external liquidity by making ROWAN a valuable asset to earn rewards.
PMTP is rooted in monetary and trade policies, Both of which have existed in some form for as long as people have been exchanging goods. PMTP allows Sifchain governance to combine these two mechanisms by influencing asset exchange rates to control currency-wide purchasing power.
Digital assets typically influence monetary policy through inflationary rewards, increasing the number of tokens a token holder has to trade. However, rather than influencing money supply and short-term borrowing, PMTP allows Sifchain governance to influence the number of opportunities currency holders to have to trade their existing quantity of tokens at a specified ratio.
Sifchain has begun establishing a PMTP governance framework through the creation of a PMTP council, which will manage monetary policy: https://www.mintscan.io/sifchain/proposals/32